How to choose the right financial adviser

If you have low confidence about making important personal financial decisions and getting things wrong would have a big impact on your lifestyle, you probably need to engage the services of a professional financial adviser. Despite the standards for UK financial advisers being among the best in the world, many people still find the task of finding and choosing a suitable financial adviser a challenge. This is where my simple five step framework can help. Read on to learn more or watch my video by clicking here.

1. Your definition of success

Ask yourself this question: ‘If we were sitting down three years from now, looking back to today, what would need to happen for you to be really satisfied with your progress over that time?’ While thinking and planning for the long-term is important, most people find it easier to look three years into the future. Rolling three year timeframes end up becoming the long-term. The clearer you can be about what ‘good’ looks and feels like from working with a financial adviser, the higher your chance of finding the right one.

2. People like you

Some adviser focus on dealing with clients at certain life stages, such as those who need to live off their wealth, others work with those people still accumulating wealth. An adviser set up to deal with wealthy people in their fifties is unlikely to be geared up to dealing with those developing their careers in their late twenties. The needs, skills, resources and communication styles are completely different. Larger companies sometimes have several units or divisions with each focusing on one or two specific niches.

Look for a company that already works with people like you. This will increase the chance of a successful outcome as they’ll understand your needs better. The company’s website is usually a good place to start.

3. The shortlist

Before you interview any potential financial adviser I strongly recommend that you use a short and objective filter. I’ve set out below some suggested criteria, feel free to create your own:

Professional endorsement – choose a company that has an affiliation with a professional body, such as the Institute of Financial Planning’s Accredited Financial Planning or the Personal Finance Society’s Chartered Financial Planning. This shows the company has undergone an external assessment of professional standards and has highly qualified staff.

Location – choose somewhere you can get to, even if they offer to visit you. Ideally visit them at their offices so you can get a feel for the people and the culture. Be wary of meeting advisers in hotel lounges, it’s neither private nor professional.

Ongoing or one off advice – if you need one off advice on a major issue, such as a pension transfer or arranging care fees funding for an elderly relative, make sure the company is happy to provide that service. On the other hand, if you need a comprehensive and highly personalised ongoing advice and management service, make sure the company is able to provide that, some firms can’t due to the sheer number of clients to staff they have.

Independent or restricted advice – companies that provide independent advice have a duty to consider financial solutions from the entire market based on your needs, not what suits their commercial objectives. Ideally you should choose an independent adviser, particularly if your needs are complex.

4. The people and approach

Personal financial advice is first and foremost a people business, which is built on trust and mutual respect. You need to feel comfortable with the people you will be dealing on a day to day basis and how they work.

Some companies operate in small teams with one person responsible for the overall relationship and advice, supported by planning assistants, portfolio managers and service associates. Some advisers are sole traders who deliver all aspects of the service. You will have to reconcile the benefits of a more intimate personal relationship with the risk that if your adviser takes emergency leave or becomes ill, there will be some inevitable disruption to your service.

The way companies communicate and deliver the advice varies quite a lot depending on the niche they serve, their regulatory permissions and the extent to which they use technology. You need to make sure that how they explain things, whether face to face, over the ‘phone or in writing, suits how you like to communicate. 100-page reports of dense text is unlikely to appeal to anyone!

5. Determining value

Financial planning advice should help you to achieve better financial. A good adviser should save you time and help you to make well informed decisions to stay disciplined in the face of the inevitable ups and downs of the stock market.

A recent study[1] concluded that “Based on our analysis, advisers can potentially add ‘about 3 percent’ in net returns…….” It reached this figure by placing a value on the following services:

• Using low-cost funds: 0.45%
• Annual portfolio rebalancing: up to 0.35%
• Behavioural coaching: 1 to 2%
• Tax efficiencies: nil to 0.75%
• Withdrawal order for spending: up to 0.70%

While I can’t promise taking financial advice will deliver you an extra 3% per annum, if you choose an adviser that is right for your needs, there is a very good chance you’ll feel more confident about your finances, you’ll worry a lot less and you’ll probably have more freedom to be, do or have whatever you want.

Here’s an adviser checklist that can help

[1] ‘Putting a value on your value: Quantifying Vanguard Advisor’s Alpha’, Francis M. Kinniry Jr., CFA, Colleen M. Jaconetti, CPA, CFP ®, Michael A. DiJoseph, CFA, and Yan Zilbering,  March 2014

About the Author

Jason Butler is a Chartered Financial Planner and Investment Manager at Bloomsbury Wealth. He has 23-years’ experience in advising successful individuals and their families on wealth management strategies.